
In the face of severe political difficulties and civil
unrest, the government of Bangladesh seems to have lost
its impetus for structural reforms. Moreover, devastating
floods, combined with infrastructural failings such as
power shortages, inadequate port facilities and
insufficient energy supplies, led to a sharp drop in
export growth - from 17.1% in 1997/98 to 2.9% in 1998/99.

Bangladesh
should continue trade liberalization and carry out major
structural reforms Back
to top

A
new WTO Secretariat report on the trade policies of
Bangladesh says that it has made considerable progress in
reducing tariffs and quantitative restrictions on
imports. While maintaining its liberal investment regime,
Bangladesh should carry out further structural reforms in
order to reap the full benefits from its trade
liberalisation. Access in export markets are undoubtedly
obstacles to Bangladesh's economic development; however,
the main obstacles are home-grown.

The
WTO Secretariat report, along with a policy statement by
the Government of Bangladesh, will serve as a basis for
the trade policy review of Bangladesh that will take
place on 2 and 4 May 2000 in the Trade Policy Review Body
of the WTO.

The
report also notes that in the face of severe political
difficulties and civil unrest, the government of
Bangladesh seems to have lost its impetus for structural
reforms. Moreover, devastating floods, combined with
infrastructural failings such as power shortages,
inadequate port facilities and insufficient energy
supplies, led to a sharp drop in export growth - from
17.1% in 1997/98 to 2.9% in 1998/99.

The
report says that textiles, and particularly clothing,
have dominated Bangladesh's exports, with their combined
share growing from 70.4% in 1992 to 83.5% in 1998. These
exports have been a principal source of Bangladesh's
economic growth in the 1990s. The exports are destined
mostly for the U.S. and European Union markets, to which
Bangladesh has privileged access. The report notes that
such heavy dependence on a limited number of products
makes the Bangladesh economy vulnerable to increased
competition from other Asian countries that produce
labour-intensive garments, as these countries recover
from the recent economic crisis with substantially
depreciated currencies. Moreover, the phasing out of
preferential access to these markets and the full
integration of all textile and clothing products into the
GATT 1994, scheduled for 1 January 2005, will require
Bangladeshi ready-made garments exporters to increase
efficiency and improve product quality.

The
report notes that since 1992, Bangladesh has continued
making efforts to simplify and rationalize its trade
regime. The customs tariff is now Bangladesh's main trade
policy instrument. Nominal applied most-favoured-nation
(MFN) tariffs have fallen by more than half, from an
average of 58% in 1992/93 to 22% in 1999/2000. The tariff
is also the Government's principal source of revenue,
accounting for nearly one-third of total taxes. The
number of trade-related quantitative restrictions has
also been reduced. The report states, however, that the
regime still lacks transparency in its application of
certain trade and trade-related measures such as customs
administration, tariff concessions, other border charges,
subsidies and other assistance and the regulatory
framework. Such lack of transparency allows considerable
scope for administrative discretion, and even corruption,
which in turn increases the uncertainty and costs of
trade with and doing business in Bangladesh.

Despite
a sharp reduction, the report says, tariff protection is
still high and applied rates vary widely. Bangladesh's
applied MFN tariff is characterized by escalation, with
tariffs on raw materials lower than those on
semi-processed and fully processed goods. In comparison
to the tariff structure in 1992/93, that of 1999/2000 is
much more clearly characterized by protection to domestic
manufacturers, who can import raw materials at relatively
low duty rates, and, after adding domestic value, are
protected by relatively high tariffs on import of
finished goods. The report states that the ready-made
garment sector, Bangladesh's largest exports, has
flourished because it has been insulated from the tariff
regime.

On
the investment front, the report notes, Bangladesh
maintains one of the most liberal regimes in South Asia
with few limitation on foreign equity participation and
offers immense opportunities such as a relatively cheap
and abundant labour. According to estimates by the World
Bank, annual foreign direct investment (FDI) in
Bangladesh, quadrupled from US$83 million in 1994/95 to
US$386 million in 1997/98, with the bulk of FDI going to
the gas sector, due to its considerable reserves.
However, FDI in other areas has been discouraged by
inadequate basic infrastructure, slow pace of
privatisation, an inefficient financial system and a
generally uncertain political climate. Thus, the report
states, the cost of doing business in Bangladesh is
unnecessarily high and impairs the competitiveness of
firms operating there, both domestic and foreign.
Furthermore, with the Government's decision to open up
infrastructure and other services to private domestic and
foreign investment, Bangladesh could enhance investor
confidence by binding its market access within the GATS.

Notes
to Editors

Trade
Policy Reviews are an exercise, mandated in the WTO
agreements, in which member countries trade and
related policies are examined and evaluated at regular
intervals. Significant developments which may have an
impact on the global trading system are also monitored.
For each review, two documents are prepared: a policy
statement by the government of the member under review,
and a detailed report written independently by the WTO
Secretariat. These two documents are then discussed by
the WTOs full membership in the Trade Policy Review
Body (TPRB). These documents and the proceedings of the
TPRBs meetings are published shortly afterwards.
Since 1995, when the WTO came into force, services and
trade-related aspects of intellectual property rights
have also been covered.

For
this review, the WTOs Secretariat report, together
with the policy statement prepared by Bangladesh, will be
discussed by the Trade Policy Review Body on 2 and 4 May
2000. The Secretariat report covers the development of
all aspects of Bangladeshs trade policies,
including domestic laws and regulations, the
institutional framework, trade policies by measure and by
sector.

Attached
to this press release is a summary of the observations in
the Secretariat report and parts of the government's
policy statement. The Secretariat report and the
governments policy statement are available for the
press in the newsroom of the WTO internet site
(www.wto.org). These two documents and the minutes of the
TPRBs discussion and the Chairmans summing
up, will be published in hardback in due course and will
be available from the Secretariat, Centre William
Rappard, 154 rue de Lausanne, 1211 Geneva 21.

During
the early 1990s, Bangladesh made considerable progress in
stabilizing and liberalizing its economy. As a result,
inflation was much lower than previously, and average
annual real GDP growth in 1992-98 was above 5%, largely
led by exports involving ready-made garments (RMGs).
Indeed, one of the most striking features of Bangladesh's
trade is that textiles and particularly clothing dominate
exports: their combined share grew from 70.4% in 1992 to
83.5% in 1998; by contrast, jute, which had previously
been Bangladesh's main export, comprising around half of
total exports through the mid-1980s, accounted for only
6% in 1998. This dramatic change in the composition of
exports is the consequence of Bangladesh's increased
integration into the multilateral trading system.

Agriculture
still accounts for 30% of GDP while employing 63% of
total labour force. The RMG-dominated manufacturing
sector and services, accounting for 9% and 61% of GDP,
respectively, have been the sources of the economy's
growth.

A
major development, in March 1994, entailed the
liberalization of the exchange regime for current
international transactions. However, an appreciating real
effective exchange rate has threatened to undermine
Bangladesh's export competitiveness, particularly
vis-Ó-vis South-East Asian garment manufacturers, and
therefore constitutes a threat to future export-led
growth.

Whereas
annual government expenditure has averaged around 14% of
GDP during the review period, tax revenues have averaged
only 7.5%, which is very low both by international and
neighbouring countries' standards. (The ratio of taxes to
GDP is even lower if one includes the underground
economy, which is thought to account for roughly half of
GDP.) With other sources of revenue amounting to
approximately 2% of GDP, the outcome is a persistent
central government budget deficit of around 5%. The weak
revenue base jeopardizes the Government's ability to
undertake essential social expenditures on health and
education, etc., which would help to alleviate poverty,
and to provide reliable basic infrastructure. The overall
fiscal position of the public sector as a whole (that is,
consolidated to take into account non-financial,
state-owned enterprises) is even worse, owing to weak
performance of these enterprises. Their operations are
sustained largely through government-guaranteed borrowing
from state-controlled banks, official external donors,
and an accumulation of domestic and external arrears.

On
the structural policy front, the Government has continued
to pursue, inter alia, trade liberalization,
financial sector reform, and privatization, while
maintaining in legislative terms one of the most liberal
foreign direct investment (FDI) regimes in South Asia.
However, in the face of severe political difficulties and
civil unrest, which manifested themselves in frequent
nationwide strikes ("hartals") costing the
country at least 30 working days in 1999 alone, the
impetus for structural reform seems to have waned.
Moreover, between 1997/98 and 1998/99, real GDP growth
dropped from 5.3% to 4.2%. This was partly the
consequence of a sharp drop in export growth (from 17.1%
to 2.9%), which was initially due to the devastating
floods that covered a third of the country, but
exacerbated by recurrent power shortages, inadequate port
facilities, and other infrastructural bottlenecks, as
well as disruptions owing to nationwide strikes. At the
same time, inflation increased owing to a surge in food
prices, again caused by the floods. As the food supply
situation improved and non-food inflation moderated,
inflation began to fall.

Unfortunately,
real annual GDP growth, averaging around 5% during the
review period, has not been sufficient to make much of a
dent in the poverty that pervades Bangladesh; GDP per
capita in 1998/99 was only US$345, among the lowest in
the world. More than one third of Bangladesh's population
of 127 million still lives below the poverty line, and
more than half is classified as poor. Given Bangladesh's
high incidence of poverty, its dense population, and its
vulnerability to natural disasters, including periodic
flooding and cyclones, food security is a major policy
objective of the Government. Bangladesh is a large
recipient of foreign aid, a substantial portion of which
entails food.

Trade
Policy Framework

The
Ministry of Commerce (MOC) is responsible for
coordinating trade policy matters through its agencies,
as well as in consultation with other Ministries and
governmental bodies; national committees are formed to
address specific issues on trade and industrial
development. Private sector representatives, including
business groups and academic institutions, are consulted
in the policy-making process through their participation
in the national committees. A major institutional change
involves the upgrading of the Tariff Commission under the
purview of the MOC; the Commission is now empowered to
conduct anti-dumping and countervailing investigations.

Bangladesh
extends most-favoured-nation (MFN) treatment to all
trading partners and has taken steps to amend its
legislation in the light of its obligations undertaken in
the context of the Uruguay Round, including in the areas
of customs valuation, anti-dumping and countervailing
measures, and protection of intellectual property rights.
However, Bangladesh has found it difficult to meet its
WTO notification requirements. Bangladesh is a leading
voice among least-developed Members in the WTO as regards
their specific needs and concerns as well as the
difficulties they face.

Trade
Policy Measures

Since
1992, Bangladesh has continued to liberalize its trade
regime, by, inter alia, greatly reducing tariffs and
eliminating some quantitative restrictions on imports. It
has also considerably increased the transparency of its
trade regime. Nonetheless, the regime is still
characterized by a certain lack of transparency
(including ambiguity) as regards the application of
certain trade and trade-related measures (notably customs
administration, tariff concessions, advance income taxes
on imports and exports, import surcharges, subsidies and
other assistance, competition policy, and the regulatory
framework). This provides considerable scope for
administrative discretion, and even corruption, which in
turn increases the uncertainty and costs of trading with
and doing business in Bangladesh. At the same time, lack
of transparency distorts market signals that are
necessary to ensure an efficient allocation of resources,
preventing Bangladesh from reaping the full benefits from
trade liberalization and what would appear to be one of
the most liberal FDI regimes in South Asia.

The
customs tariff is the main instrument of Bangladesh's
trade policy. It is also the Government's principal
source of revenue, accounting for nearly one third of
total taxes. During the period under review, Bangladesh
has made considerable efforts to simplify and rationalize
the tariff structure by reducing the number of tariff
bands from 15 in 1992/93 to 5 in 1999/2000, and lowering
the maximum tariff rate from 300% to 37.5% during the
same period. While nominal applied MFN tariffs have
fallen by more than half, from an average of 58% in
1992/93 to 22% in 1999/2000, tariff protection is still
high and applied rates vary widely. Thus, the tariff
constitutes a potentially important impediment to
competition and therefore an obstacle to the efficient
allocation of domestic resources. At the same time, the
wide dispersion in nominal tariff rates provides
considerable scope for misclassification of imports by
customs officials. Moreover, the lack of bindings and
wide gaps between applied and bound rates impart a degree
of unpredictability to the tariff regime. The existence
of a number of tariff concessions, some based on end-use,
may require importers to consult more than one document
in order to ascertain the applicable tariff rate, which
adds to the uncertainty and opacity of tariff assessment.
Further protection and unpredictability has arisen
because customs valuation has not always been based on
transaction prices; recently, the authorities have taken
steps aimed at bringing customs valuation into line with
WTO norms.

Tariff
reform has resulted in a considerable fall in the overall
level of effective protection, and has also reduced the
dispersion in effective rates of protection (ERPs).
Nevertheless, ERPs still vary widely across sectors; the
export-oriented textiles and clothing sectors, together
with processed food and tobacco products, are accorded
high levels of effective protection. The RMG sector, has
flourished, however, because it has been insulated from
the tariff regime; it has also greatly benefited from
Bangladesh's export promotion measures and preferential
access to U.S. and EU markets.

State
involvement in trade has been greatly reduced, and all
countertrade and special trade arrangements have been
abolished since the last Review. However, tariffs are
augmented by a multiplicity of other border charges and,
in some instances, the discriminatory application of
internal taxes, all of which are tantamount to tariffs
and can raise nominal protection by one third. While the
overall number of banned or restricted import items,
including those for trade and non-trade reasons, has been
reduced considerably, they account for 11.7% of HS
8-digit tariff lines in 1999/2000. Trade-related bans or
restrictions remain on agricultural and textile products.

To
mitigate the adverse impact on exporters' competitiveness
of high tariffs, various other charges, and import
restrictions, exporters benefit from an array of
measures, including concessional tariffs, a duty drawback
system, special bonded warehouses and export processing
zones. As a result, the trade regime is complex. In
addition, direct subsidies are provided to exporters of
textiles and clothing, and were recently extended to
exporters of some other products. Furthermore, tax relief
of 50% is allowed for income generated by exports.

Since
its last Review Bangladesh has further opened up many of
the state-dominated sectors to private investment; the
sectors include essential infrastructure, such as
telecommunications, power generation, and transport.
While the foreign investment regime is liberal, with no
limitations on foreign equity participation or
repatriation of profits, lack of investment in these and
other sectors, has clearly hampered Bangladesh's economic
development.

In
an effort to encourage investment, the Government offers
a wide range of open-ended tax incentives, notably tax
holidays and accelerated depreciation. However, the
effectiveness of such incentives in attracting investment
is doubtful, particularly in the absence of fiscal
transparency, which would involve a detailed account of
tax revenues forgone, and systematic evaluation of the
impact of these incentives in relation to forgone taxes.
The existence of incentives complicates tax
administration and taxpayer compliance, while increasing
the scope for tax avoidance and evasion, both of which
are reflected in Bangladesh's low overall level of tax
collection relative to GDP.

Infrastructural
Services

Inefficient
provision of essential services has constituted a major
impediment to the smooth functioning of the Bangladesh
economy. A weak financial system hampers economic growth,
for instance, by restricting access to the financing of
exports and investment. Insufficient and unreliable
telephone connections and energy supplies can disrupt
production of goods and services, while poor
transportation and port services hinder international
trade and the domestic distribution of goods. This lack
of reliable basic infrastructure discourages foreign
investment in Bangladesh. Many of these basic
infrastructural services have long been provided by
state-owned enterprises, most of which are inefficient
and often loss-making, employ outdated equipment, and are
unable to meet the essential needs of the economy. Thus,
the cost of doing business in Bangladesh is unnecessarily
high, which impairs the competitiveness of firms
operating there.

The
natural gas and power sectors have attracted large FDI
inflows in recent years and offer great potential to the
Bangladesh economy. Given its considerable reserves, the
gas sector could boost industrial and agricultural
production through increased power generation and
fertilizer production, and may eventually offer the
opportunity for exports of gas in various forms.
Bangladesh's scarce power generating capacity, which has
impeded the country's production capacity, has been
increased by FDI in the sector.

Despite
the Government's decisions to open up infrastructure (and
other) services to private domestic and foreign
investment, it has so far failed to make use of the GATS
framework, which could help build investor confidence
with regard to Bangladesh's commitments to liberalization
of state-dominated services. While it has made some
commitments in the tourism and travel-related services
and telecommunications, these were merely a commitment to
the status quo.

Outlook

While
barriers to access in export markets are undoubtedly
obstacles to Bangladesh's economic development, the main
obstacles are home-grown. Notwithstanding the immense
opportunities offered by Bangladesh, including its
relatively cheap and abundant labour, potentially large
market, and one of the most liberal FDI regimes in South
Asia, FDI continues to be discouraged by a number of
problems. These include frequent strikes, inadequate
basic infrastructure (notably power, telecommunications
and transportation facilities) and resulting bottlenecks,
slow pace of privatization, an inefficient financial
system, an institutional environment that is bureaucratic
and corrupt, political uncertainty, and a worsening law
and order situation. These factors tend to increase the
cost of doing business in Bangladesh, thereby impairing
the competitiveness, not just of foreign-owned
enterprises, but also of domestically owned enterprises.
Clearly, there is a pressing need to create the broad
political consensus necessary to address these problems
through structural reforms. Such reforms might usefully
include further trade liberalization, although Bangladesh
appears to be reluctant to undertake such reforms because
of what it views as the slower pace of liberalization by
some of its main trading partners.

While
Bangladesh has escaped the worst effects of the Asian
crisis, the depreciation of the crisis-hit countries'
exchange rates may well mean that it will face
intensified competition from these and other countries,
particularly in respect of labour-intensive RMGs. With
textiles and clothing dominating its exports, and the
bulk of those exports going to the European Union and the
United States, there is a need for Bangladesh to
diversify both its export base and export markets. At the
same time, the phasing out of preferential access to
these markets and the full integration of all textile and
clothing products into the GATT 1994, scheduled for
1 January 2005, will require Bangladeshi RMG
exporters to increase efficiency, improve product
quality, and ensure that their products are competitively
priced.

1.
Bangladesh along with other developing countries joined
the WTO at the culmination of the Uruguay Round (UR) in
order to avail the advantages of an open and liberal
trading system. This was to strengthen the domestic
production base and competitive position and to, inter
alia, avail the opportunity to negotiate for enhanced
market access in major developed and newly industrialized
countries. In Bangladesh, the trade liberalization
process started in the mid 1980s. The Government has
since undertaken a number of bold steps, which include
liberalization of the trade and foreign investment
regime, strengthening the financial sectors, legislative
and regulatory framework, closing and privatizing some
loss-making state-owned enterprises (SOEs), adjusting or
abolishing some administered prices, broadening the base
of VAT collection and taking steps to improve governance.

2.
In respect of trade liberalization, export
diversification and import liberalization received the
highest priority in the earlier years. This consisted in
permitting the exporters of non-traditional items to
convert some of their export earnings at the higher
exchange rate in the secondary market, reduction of the
tariff level and tariff dispersion, simplification and
rationalization of the tariff structure, and deregulation
of the import process. The result was reduction of QRs
and some tariff cuts by the mid 1980s. These reforms led
to higher growth of non-traditional exports and the
emergence of a more diversified export structure. The
"positive list" carried over from the
pre-liberalization days was replaced with a smaller
"negative list", which specified items not to
be imported without official sanction.

3.
Towards the end of the 1980s, import liberalization leapt
forward stimulating the export sector with some
additional incentives. The number of items on the
negative list was progressively reduced. As far as import
items subject to QRs were concerned, about two thirds of
HS 8-digit items for the whole economy in 1987 had been
made eligible for free entry into the country and only
about one eighth of the items remained banned. This was a
substantive progress when set against the highly
protected trade regime in place at the beginning of the
1980s.

4.
In the 1990s the liberalization process was accelerated.
A major thrust of change was the substitution of the
multiple-rate sales tax by a 15% VAT. The successive
budgets also announced progressive reduction of tariff
and non-tariff barriers. By 1994, the share of free
import items rose to 94% of all HS 8-digit items and only
0.4% remained banned. During this process, the pace of
liberalization in the import of intermediate and capital
goods moved much faster than for consumer goods. 76% of
intermediate and 73% of capital goods were already
allowed unrestricted import in 1987; this share increased
to 97% and 93%, respectively, in 1994. In addition to the
dismantling of non-tariff restrictions, there has also
been a drastic cut in nominal protection rates over the
years. Tables 1 and 2 summarize the reductions in tariff
and non-tariff barriers as a result of this
liberalization process.

Table
1Back
to topTrends
in average and dispersion of tariffs, FY1991-2000(Per
cent)

5.
It can be seen from information in the above table that
the maximum tariff (customs duty) rate was reduced from
350% in FY91 to 40% in FY99. Under the FY2000 Budget, the
maximum tariff rate was reduced further to 37.5%. In
contrast to the vary high tariff rate that prevailed in
the early 1990s, reductions achieved in the maximum as
well as the average tariff rates are significant.
However, the average rate is pulled down substantially
because many of the non-competing imports  such as
locally unavailable raw materials and machinery/equipment
 enter at zero or very low rates. Competing imports
face higher tariff rates, nearly 25% of tariff lines
(mainly finished products) face the maximum tariff rate.

6.
The percentage of items subject to trade-related
quantitative restrictions has been reduced from 40% to
2%, at the HS 8-digit level. Most of these developments
have taken place since 1992. As a result of these
reforms, the unweighted average tariff has fallen from
89% in 1990/91 to about 20% in 1998/99, while the
import-weighted average tariff has declined from 30% to
about 16%.

7.
The lowering of tariffs and the withdrawal of
quantitative restrictions has, over the years,
contributed to reducing the spread between the official
exchange rate and the market exchange rate. The foreign
exchange market was unified in 1992, and Bangladesh
accepted the obligations of Article VIII of the IMF
in 1994, making the taka fully convertible for current
account transactions.

8.
Trade liberalization in Bangladesh appears to have
progressed at a faster rate than in many neighbouring
countries. Bangladesh exporter have been very successful
in penetrating the highly competitive markets of the
European Union and the United States. In some cases the
quota utilization rate for different categories of
apparel has recently been nearly 100% in Bangladesh. Over
the years, Bangladesh has been able to improve product
quality and has gained greater acceptance in
international markets, with apparel exports increasing
from 5.2% of total world imports in 1995 to 6.8% in 1997.
Garment exporters have gradually moved up-market in
recent years and are increasingly exporting sophisticated
items like high quality suits, jackets and branded items.
In recent years some exporter have also been successful
in penetrating Japan's extremely quality conscious
market. As a result, merchandise exports, led by the
garments industry, grew at an impressive annual average
rate of 17% in US dollar terms between 1990/91 and
1997/98. However, the export base has been very narrow,
with bulk of the foreign exchange earnings coming from a
few sectors. The removal of the Multi-Fibre Arrangement
quotas in 2004, under the Uruguay Round Agreement on
Textiles and Clothing, might result in Bangladesh losing
its preferential access in these markets. While
Bangladeshi exporters have started competing effectively
in global markets, the phasing out of preferential access
and the abolition of quotas, scheduled for 2005, will
require them to increase their efficiency, improve
product quality and ensure that their products are
competitively priced.

9.
The Government is taking a number of steps to improve
trade-related infrastructure, both physical and
institutional, to meet the challenge of the dynamics of
the present and future trends in trade. Addressing these
constraints should enable the private sector to diversity
into higher-value-added products and decrease the
economy's dependence on a few items. The Government is
aware of the urgent need for building trade management
capacity and in this respect has launched a long-term
Customs and Tax Modernization Program. Initiatives are
also in progress for strengthening the capacity of the
Bangladesh Tariff Commission to provide effective
assistance to the Government and the private sector in
meeting obligations of WTO rules and various regional
cooperation agreements. Over the medium term, customs is
expected to evolve into a trade-facilitating agency.

10.
Economic performance is the result of the influence of a
host of factors  quantitative and qualitative. It
is rather difficult to disentangle precisely the
contribution of trade liberalization to economic
performance. However, the significance can be indicated
by associating trade liberalization to the change in some
macroeconomic indicators like GDP growth rate, the rate
of inflation, export performance, current account
balance, etc. Thus, trade liberalization appears to have
contributed, together with other market-oriented reforms
and sound macroeconomic management, to improved
macroeconomic performance. The people of Bangladesh have
benefited from the improvement in policies, with growth
in GDP per capita accelerating to 3.2% per annum during
1991-98 compared with 1.7% during 1984-90. Per capita GDP
growth rates in both periods would have been higher had
it not been for the disaster proneness of the country,
which saw the devastating floods of 1987, 1988 and 1998
and the catastrophic cyclone in 1991. Financial year 1999
has been a difficult year for Bangladesh. The floods of
1998 imposed hardship on the lives of millions of people
and caused colossal losses to the economy. The adverse
impact of the floods, notwithstanding, actual perfomance
of the economy was far better than expected after the
floods. Timely initiative of the Government and the
courage of the people have played an important part in
the process of recovery.

11.
It is expected that GDP growth rate will reach 5.47% in
FY2000 compared with 4.88% during FY99. Long-term trends
of changes in sectoral composition of GDP show that the
relative share of the agriculture sector declined from
about 30% of GDP in the early 1990s to around 25% in the
late 1990s. On the contrary, the share of the
manufacturing sector increased from 12-13% to 15-16% of
GDP during the corresponding period. The shares of other
sectors of the economy remained relatively stable over
the same period. These changes indicate that while output
of agriculture has increased on a sustained basis, its
relative contribution has been declining and those of the
industry

and
the services sector have been increasing over the years.
The recent variations do not indicate reversal of the
trend, but the impact of temporary shocks.

12.
The agriculture sector, which provides about one fourth
of the GDP, overcame the impact of the floods. The
progressively liberalized trade-policy environment and
the resulting increase in exports in the 1990s have
improved Bangladesh's external position. The current
account deficit excluding grants improved from 2.2% to
1.2% of GDP from 1996/97 to 1997/98.

13.
The budget deficit during FY99 has been estimated at
5.3%, up from 4.2% of GDP in the previous year. An
expansionary monetary policy was pursued with Broad money
(M2) increasing by 12% in the twelve months ending April
1999 compared with an increase of 8.7% in the preceding
year. During the first two quarters of FY99 there was an
upward pressure in prices but after the new harvest, the
inflation rate declined. Primarily due to lower food
prices, the quarterly adjusted inflation rate fell from
12.7% in December 1998 to 7.5% in April 1999.

14.
The FY2000 Budget has emphasized mobilization of domestic
resources, promoting export-led industrial expansion, and
poverty alleviation. It has introduced changes in
taxation to expand revenues and improve efficiency in the
tax system. To encourage private investment in the export
sector, floating government bonds amounting to about
US$200 million have been offered to attract resources for
industrial investment. Progress has also been made in
enacting laws and setting up special courts to deal with
loan defaulters, opening up the telecommunications and
energy sectors to private investment, and improving cost
recovery for public services.